Testing for cointegration using the Johansen approach: Are we using the correct critical values?

Paul Turner ()

Discussion Paper Series from Department of Economics, Loughborough University

Abstract: This paper presents Monte Carlo simulations for the Johansen cointegration test which indicate that the critical values applied in a number of econometrics software packages are inappropriate. This is due to a confusion in the specification of the deterministic terms included in the VECM between the cases considered by Osterwald-Lenum (1992) and Pesaran, Shin and Smith (2000). The result is a tendency to reject the null of no cointegration too often. However, a simple adjustment of the critical values is enough to deal with the problem.

Keywords: Cointegration; Johansen Test. (search for similar items in EconPapers)
JEL-codes: C15 C32 (search for similar items in EconPapers)
Date: 2007-05, Revised 2007-05
New Economics Papers: this item is included in nep-ecm and nep-ets
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Journal Article: Testing for cointegration using the Johansen approach: are we using the correct critical values? (2009)
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